Treasury Secretary Steve Mnuchin said on twitter: “Today I convened individual calls with the CEOs of the nation’s six largest banks,” and he will have the first meeting of the “plunge protection” team Monday. Just a little advice to whomever picked the name, it doesn’t provide a warm and fuzzy feeling! What is the “plunge protection team”? Who are the members? Why is being called upon now? This team last met in 2009 during the waning days of the last recession. Is this an indication of something larger?
What is the plunge protection team?
The plunge protection team is a “crisis” team created during the Reagan administration in 1988 after the black Monday stock market crash of1987. It is composed of, the Treasury secretary, the FDIC, the comptroller of the currency, the SEC, and others. It is basically composed of all the key US economic regulators/players to help shepherd the United States economy through crisis.
Why is it being called upon now?
This is the million-dollar question. The federal reserve, the president, and the treasury secretary are all saying the economy is doing well. Consumer confidence is at its highest in 8years and yet the crisis team is called? My suspicion is that the president and treasury secretary thought that by calling the team this would help calm the markets and create some sense of order. The effect is quite the opposite.
Is the plunge protection team an indicator of something larger?
“Nothing says don’t panic like saying ‘I’m calling the plunge protection team tomorrow,”’ Michael O’Rourke, Jones Trading’s chief market strategist, said by phone. “I honestly think that’s the type of event that’s going to startle markets and create more panic and fear when it’s meant to create confidence.” (Bloombergnews ). “We saw a lot of sell-offs in 2011, 2015-2016, and I don’t remember the presidents trying to convene the bank heads,” said Michael Antonelli, equity sales trader at Robert W. Baird. “I’m worried the White House is going to make a mistake by exacerbating the market concern. Trump needs a political win, a PR that looks like he’s on top of the situation, and that’s what the weekend strikes me as.”
Every news organization picked up on the announcement that the plunge protection team is being called. The last time it was called was during the largest recession in recent memory. This announcement all over the media will spook the markets further and could be self-fulfilling.
What does this mean for real estate?
On the real estate front, I don’t see trouble like we saw in the last crisis. There will be a moderation/decline in prices as the current cycle unwinds. I don’t see a panic in the real estate market like we are seeing in stocks.
With all this volatility look for banks/ prime lenders to pull back substantially. All this volatility makes bankers nervous and this will translate into their lack of appetite to lend much unless the transaction is absolutely perfect. Lending standards will therefore tighten making financing less accessible.
On a positive note, rates will hold steady in the near term and in the next 18 months will likely decline. The decline in rates should help consumer and business buying power in the real estate market.
What should you do?
The best advise is to do nothing and tolerate the bumpy road we are on. Unfortunately, there is not much else you could do anyway at this point other than ensure you have liquidity. This downturn looks like it will be a slow drudge down as opposed to a sharp drop like the last cycle so try to get comfortable on this journey since it will be a long one.
Written by GlenWeinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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